Facts About Whole Life Insurance

A whole life insurance policy promises to pay a specific death benefit, accumulates cash value (usually at a fixed rate) and does not have an expiration date.  Premiums are a fixed amount and the policy remains in effect as long as they are paid in full and on time.  Much higher premiums usually are charged for whole life insurance policies, however.

Term

• Whole life insurance policies have no expiration date, as long as premiums are paid in full and on time. However, many policies do end when the policy holder turns 100.

Benefits

• Death benefits are fixed and will not change.  The insured knows exactly how much money will be paid to beneficiaries upon his or her death.


• Premiums (payments made by the insured) usually are fixed for the life of the policy.


• While the premiums are high, part of the premium is invested and builds tax-deferred cash value that the insured can borrow against or receive in full if the policy is cancelled.


• The longer the policy is in force, the greater the cash value.

Types

• Traditional Whole Life policies- Premiums, death benefits and cash value are fixed.


• Universal Whole Life policies- Premiums, death benefits and cash value can fluctuate, depending on whether the insured pays a minimum amount or adds to the premium.


• Variable Whole Life policies- The insured makes insurance investment decisions. Death benefits and cash value are determined by those investments.  Premiums are fixed.

Risks

• Whole life insurance premiums can be very expensive, so the insured may not purchase enough death benefit insurance coverage.


• Because the premiums can be so expensive, the insured may end up buying too much insurance over their lifetime.  A term life insurance may turn out to have been a better investment.